Are you Ready? FASB Issues New Guidance on Not-for-Profit Financial Reporting: What You Need To Know

In August 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU 2016-14) in order to simplify the financial statements of non-profits. The new standard helps to improve the financial presentation of the non-profit’s financial statements as well as provide more transparency in the note disclosures.

Effective Date: For annual financial statements issued for fiscal years beginning after December 15, 2017 and for interim periods within fiscal years beginning after December 15, 2018. Early implementation is permitted.

Here are the areas where requirements have changed in financial reporting for not-for-profit organizations:

Net Asset Classes

Investments Return

Expenses

Liquidity and Availability of Resources

Presentation of Operating Cash Flows

Net Assets Classes

Reduces the number of net asset classifications from three to two: (1) Net Assets with Donor Restrictions and (2) Net Assets without Donor Restrictions

Footnote disclosures will be required to include:

Timing and nature of restrictions

Composition of net assets with donor restrictions at the end of the period

Analysis by time, purpose, and perpetual restrictions

For example:

Net assets with donor restrictions are restricted for the following purposes or periods:

Subject to expenditure for specified purpose:

Program A activities:

Purchase of Equipment

$3,060

Research

$950

Program B activities:

general

$2,000

Buildings and Equipment

$2,240

$8,250

Subject to the passing of time:

For periods after 20X1

$5,250

Subject to Entity’s spending policy and appropriation:

Investment in perpetuity

$102,157

Total Net Assets with Donor

Restrictions

$115,657

Investment Return

ASU changes the presentation of investment income to require non-profits to report investments returns net of any related external and direct internal investments expenses on the Statement of Activities.